ACCA FR · Chapter 12 · Question 7 of 13
During the year Jaguar Co sold goods to its 80% subsidiary for $800,000, at cost plus 25%. At the year end the subsidiary still held one quarter of these goods. What adjustment is needed for unrealised profit in the consolidated SFP?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Reduce inventory by $40,000 and reduce group retained earnings by $40,000
Explanation
Goods still held = $800,000 x 1/4 = $200,000. With a mark-up of 25% on cost, the profit element is 25/125 of selling price: $200,000 x 25/125 = $40,000. The parent was the seller, so the whole adjustment is charged to group retained earnings, and none to NCI. Inventory is reduced by $40,000.
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